Chapter 13 Bankruptcy and Lien Stripping

Many people are aware of the various benefits that filing Chapter 13 Dallas bankruptcy can have for your financial future. The ability to make income-based repayments over a period of time and then have the remainder of your debts discharged is an attractive one for many people who face massive debts but do not want to suffer the loss of property that can happen in other kinds of bankruptcies.

One additional benefit of Chapter 13 bankruptcy that many people do not even know about is lien stripping. Here we discuss this benefit in broad terms.

Chapter 13 and Second Mortgages

A Chapter 13 bankruptcy filing results in the stripping away of all junior liens. Junior liens include second or third mortgages, which can be a great relief for many suffering from underwater mortgages and dropped home values. The first mortgage on a home takes precedence over any other liens against that home, so if you have a second or third mortgage, and the value of your home is less than the amount of your first mortgage, the lien against your home put in place by that second or third mortgage is stripped away.

What this means then is that those second and third mortgage debts are treated just like other unsecured debts in your Chapter 13 bankruptcy; they will not receive priority in the repayment plan, and any remaining debt owed to the second or third mortgage lenders will be discharged at the end of the repayment period.

In the right situations, this lien stripping can be a very powerful tool to clear out your mortgage debt.